Hope you are well. The S&P 500 and NASDAQ fell for the second week in a row amid choppy trading, although the latest weekly declines were modest at just 0.5%. The Dow’s decline was even smaller; but that index posted its third straight negative weekly result. With less than two weeks remaining in September, the stock market’s modest decline since the early part of the month threatens to snap the S&P 500’s string of seven positive months in a row. As of Friday,the index was down more than 2% from a record high achieved on September 2. I have broken down this week’s news using the top 3 songs from Rolling Stone magazine’s top 500 list released this week.
#1 Respect – Aretha Franklin
Inflation is runnin’ out of foolin‘ as the surge is moderating. Inflation remains strong, but the recent spike in U.S. consumer prices subsided in August. The Consumer Price Index rose 5.3% compared with the same month a year earlier, but the rate of increase was down slightly from July’s figure and was markedly belowJune’s surge in inflation. My expectation remains that inflation will recede but settle at a higher level than we experienced over the last 20 years. Labor shortages and supply bottlenecks will begin to clear, probably more gradually than desired. Once supply catches up to demand inflation will return to a more normal rate and will let you keep your profits when you get home.
#2 Fight The Power – Public Enemy
The market will need to start fighting the Fed as the easy money period is coming to an end. The U.S. Federal Reserve doesn’t need to wear a clock like Flavor Flav to know what time it is. It’s time to trim bond-purchasing as an initial step toward broadly tightening monetary policy. Recently uneven economic data has fueled talk among economists that the Fed may hold off on setting a specific tapering date. It seems clear to me that the Fed intends to start tapering sooner rather than later.
#3 A Change Is Gonna Come – Sam Cooke
Consumers keep telling me don’t hang around. The rise in Covid, higher prices (particularly at the pump) have shaken confidence. The University of Michigan said its monthly consumer sentiment index coming in came above its already elevated figure in August. Will the change in sentiment lead to a change in market direction? I still believe the market will continue higher even if we get a short-term pullback. Corporate profits remain really strong, rising by 92% year-over-year in the second quarter. Earnings are expected to grow by 22% for the full year of 2021 and are expected to grow by another 9% in 2022. Stock prices should continue an upward trajectory as earnings continue to rise.
I am here to help at any time. If you would like to schedule a phone/web conference appointment, I have included a link to my calendar below and you can self schedule. The link will allow you to schedule either phone or zoom.
